GERALDINE MUND, Bankruptcy Judge.
Mark Alan Shoemaker ("Debtor," "Defendant," or "Shoemaker") filed a petition for relief under chapter 13 on February 18, 2010.
The current chapter 7 case ("Shoemaker Chapter 7 Case"), which is Shoemaker's second bankruptcy case, was filed on May 25, 2010 and again William Brownstein was the attorney of record.
On June 2, 2010, Advocate for Fair Lending filed bankruptcy with Brownstein as counsel.
Meanwhile, the Shoemaker Chapter 7 Case continued. On July 6, 2010, the Debtor appeared at the initial §341(a) meeting in the Shoemaker Chapter 7 Case and told Alfred Siegel, the Trustee ("Trustee" or "Siegel"), that there were "well over $4-6 million in accounts and collections actions that were due to Debtor."
On April 8, 2011, the United States Trustee filed this complaint against Shoemaker under 11 U.S.C. § 727 to deny his discharge.
On September 21, 2011, Trustee Siegel filed a report of no distribution. On June 20, 2012, Shoemaker filed amended schedules in which he asserted that he had real property assets of $32,500 and personal property assets of $12,290,946.76.
On May 16, 2013, at the request of the Trustee in the Shoemaker Chapter 7 Case, the Court gave notice of possible dividend and set a claims bar date.
Initially the Court stayed prosecution of this complaint to allow the collection actions to go forward. After the stay was lifted, it struck many of the affirmative defenses pleaded by Shoemaker in his first amended answer.
The parties to this adversary proceeding entered into a joint pretrial stipulation, which was accepted by the Court.
The Court makes the following findings of fact:
1. On May 25, 2010, Shoemaker filed a petition under chapter 7. This included his schedules and statement of financial affairs ("SOFA").
2. In item #7 of his SOFA, Shoemaker checked "none" as to gifts made within one year immediately preceding the commencement of the case.
3. On Schedule B, item #20, Shoemaker listed "none" for his holdings or interests in and to "[c]ontingent and noncontingent interests in estate of a decedent, death benefit plan, life insurance policy or trust."
4. Schedule B contained an accounts receivable aging report totaling in excess of $1.2 million.
5. George Curtis McFarland II married Shoemaker's paternal grandmother (then Dorothy Shoemaker) in 1982. McFarland died on January 24, 2008. Dorothy predeceased George. At the time of their marriage, Dorothy had two adult daughters.
6. On or about June 21, 2010, Shoemaker received a distribution of $23,516.83 from the George C. McFarland Trust II.
7. At the July 6, 2010 §341(a) meeting of creditors, Shoemaker did not testify about or otherwise expressly communicate or acknowledge his receipt of the distribution from the McFarland Trust.
8. The §341(a) meeting was continued numerous times. Sometimes the Debtor appeared, sometimes Brownstein or an appearance attorney was present. Although not specified, the Court is aware that at times §341(a) meetings are continued with no appearance by or on behalf of the debtor since the trustee is in the process of obtaining documents or discussing issues outside of that milieu. Thus it is likely that some of the continued examinations were a mere formality.
9. At the August 5, 2010 §341(a) meeting, Shoemaker provided the Trustee with a full box of 5,000-10,000 pages of documents related to his personal bankruptcy case as well as the AFL bankruptcy case. Per the testimony of William Brownstein, these appear to have been given to Brownstein, whose office scanned them and sent the scanned documents to the Trustee.
10. Siegel did not try to coordinate with the trustee for AFL. He was only interested in any value of AFL that might inure to Shoemaker personally since AFL was a separate estate.
11. On November 5, 2010, the OUST sent Brownstein a letter requesting that Shoemaker provide copies of all bank, credit union, and brokerage account statements for Shoemaker as well as an explanation and supporting documents for matters in the AFL bank accounts.
12. Additional documents were produced over time in response to requests by the Trustee and the United States Trustee. Included in the response to the UST were copies of bank statements for Citibank Account number ending 0665 (from April 1, 2010 to and through January 2, 2011) and a "Wire Transfer Detail" for a June 21, 2010 incoming wire of $23,516.83 from the McFarland Trust into that Citibank Account.
13. Not all of the requested bank statements were provided. Some may have been in a storage facility and although Shoemaker waived privilege and provided a letter of authorization, the Trustee could not gain access from the facility owner because there was a delinquency of over $3,000 and the Estate did not have any funds to pay that.
14. On January 5, 2011, Shoemaker filed his amended List of Creditors, as well as his amended Summary of Schedules and amended Schedules F and H.
15. At the continued §341(a) meeting on February 23, 2011, Shoemaker testified that a $2,120.63 purchase of jewelry on October 6, 2009 was a birthday present for his ex-girlfriend Caroline Violan. He also testified that he did not list a $5,000 "loan" to Ms. Violan on his Schedule B. He confirmed that he received the $23,516.83 distribution from the McFarland Trust and that on June 30. 2010 [one week before the initial §341(a)] he personally withdrew the lump sum of $20,000 in cash from this Citibank Account. All of these statements were in response to questions from Hatty Yip, a trial attorney in the OUST.
16. On June 20, 2012, Defendant filed his amended Summary of Schedules, amended Schedules A, B, C, and F, and his amended SOFA. He did this pro se. The amended schedules increased the gross amount of his personal property assets from $485,827 to $12,290,946.70. Among the items which constituted the increase were the value of Shoemaker's ownership interest in AFL from $0 to $400,000 and the amount of accounts receivable from $462,727.36 to $1,614,774.17. Defendant also disclosed $10,163,658.58 in additional "[o]ther contingent and unliquidated claims of every nature" in item 21 of amended Schedule B.
17. Included in the list of "other contingent and unliquidated claims" in the June 20, 2012 amended Schedule B was a $5,000 "loan to Caroline Violan" and the following:
18. After he received the amended June 20, 2012 schedules, Trustee Siegel hired special counsel to review the assets listed. They determined that they had no value.
19. Prior to filing the amended schedules on June 20, 2012, Shoemaker and the Trustee had attempted to work out a compromise of the §727 complaint. Although the Trustee was not a party to this complaint, he was a counter-defendant in a counter-claim brought by Shoemaker.
20. According to Mr. Siegel, it is not uncommon for there to be amended schedules. Sometimes this is to modify assets listed based on new information. When Shoemaker amended his schedules, Siegel's office investigated and Siegel made a business judgment — not that the statements were false, but that some of the assets listed might be worth proceeding against and some not.
21. Although not all of the contingency cases listed in paragraph 17 above were completed at the time that Shoemaker filed his Chapter 7 Case, all of the assets listed on the June 20, 2012 amended Schedule B were known to Shoemaker at the time that he filed this bankruptcy case. They were claims for fees or causes of action that arose while he was a practicing attorney.
22. At some time after June 20, 2012, Shoemaker provided a list of former clients who, he contended, owed him fees. This list also included other assets that he believed were owed to him as a result of his legal practice or involvement with AFL. Shoemaker and Siegel agreed that Siegel would attempt to collect on these asserted assets and that Shoemaker would cooperate in that collection. Shoemaker asserted that there could be sufficient collection to pay all of his creditors and therefore this adversary proceeding would be dismissed.
23. Siegel hired Bret D. Lewis as counsel to pursue assets listed in the June 20, 2012 schedules and other claims that Shoemaker later told him he possessed. On May 9, 2014, Lewis filed the adversary proceeding of Siegel v. Lee, et. al, 1:14-ap-01207 (originally filed in the Los Angeles Division as 2:14-10 ap-01314). This named approximately 37 defendants, most of whom had no relationship to each other. Judge Donovan dismissed this adversary proceeding and it was replaced by a series of adversary proceedings, each naming an individual defendant (jointly the "Collection Cases").
24. Of the 29 adversary proceedings, the Trustee obtained a default judgment for $5,000 against one defendant (1:14-ap-1239). All of the other adversary proceedings were dismissed on a motion by the defendant, stipulation, or motion by the Trustee. Based on the tentative rulings and courtroom discussion on these and other of the Collection Cases, on August 31, 2015, Siegel filed motions to dismiss most of the remaining adversary proceedings largely due to statute of limitations issues and/or lack of evidence.
25. On September 8, 2015, Shoemaker filed amended Schedules B and C.
26. Of the amended schedules that were filed, Brownstein's firm prepared only the first set, which were filed on January 5, 2012.
27. Brownstein sent 5,000-10,000 pieces of information to the OUST. His assistant had received these from Shoemaker's assistant. He did not review all of these. They were scanned in. Brownstein does not know if he got anything that Shoemaker may have had concerning the handbag and accessories business started by his girlfriend and he does not recall seeing such a document. However, Brownstein speculates that it could have been caught in the scanner. Similarly concerning the home repairs on the Lake Elsinore property. Also he does not remember receiving anything about the Trust other than what he provided to the OUST.
28. Brownstein's testimony was not always clear and in many instances he had little or no recollection concerning the Trust. But at times he was adamant that he did not give Shoemaker specific advice. Because Shoemaker did not testify, there was no admissible evidence supporting an argument that he relied on Brownstein's advice to not disclose the existence of the Trust in the initial schedules or at the initial §341(a) hearing. There also was no admissible evidence that Brownstein advised Shoemaker that he could use $20,000 of the Trust money that he received. The testimony of Brownstein is as follows:
The Plaintiff has the burden of proving the objection under §727(a).
Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9
"A party seeking denial of discharge under § 727(a)(2) must prove two things: `(1) a disposition of property, such as transfer or concealment, and (2) a subjective intent on the debtor's part to hinder, delay or defraud a creditor through the act [of] disposing of the property.'" Retz, 606 F.3d at 1199 citing Hughes v. Lawson (In re Lawson), 122 F.3d 1237, 1240 (9
The Ninth Circuit went on to state that a "debtor's intent need not be fraudulent to meet the requirements of § 727(a)(2). Because the language of the statute is in the disjunctive it is sufficient if the debtor's intent is to hinder or delay a creditor. Retz, 606 F.3d at 1200; citing Bernard v. Sheaffer (In re Bernard), 96 F.3d 1279, 1281 (9
The Plaintiff asserts that until the filing of Defendant's amended Schedule B, which was more than two years after the commencement of the case, Defendant concealed the existence of at least eight personal property assets that he valued at over $10 million. The Plaintiff also contends that Shoemaker concealed his interest in the McFarland Trust by excluding it in his initial and amended schedules and, further, that he concealed his receipt of $23,516.83 from that trust, which occurred between the date that the bankruptcy was filed and the date for the first §341(a) meeting. The Plaintiff argues that this was with the intent to hinder, delay, or defraud the Trustee. Beyond that, immediately after receipt of the money, Shoemaker used $20,000, which has never been turned over to the Trustee.
Section 727(a)(2)(A) concerns transfer, removal, destruction, mutilation, or concealment of property
The relevant dates are as follows:
May 25, 2010 — petition and schedules filed
July 6, 2010 — initial §341(a) meeting
November 5, 2010 — OUST sent Brownstein a request for copies of bank, etc. statements
February 23, 2011 — Shoemaker testified at the §341(a) as to the gift to Violan and his "loan" to her
April 8, 2011 — OUST filed this adversary complaint to seek denial of discharge
Prior to June 20, 2012, Shoemaker and the Trustee attempted to work out a compromise of the §727 complaint
June 14, 2012 — Trial date for UST v. Shoemaker. This is continued at the request of the OUST
June 20, 2012 — Amended schedule B filed revealing the enhanced personal property assets from $485,000+ to $12+ million.
There is no evidence why Shoemaker omitted these assets prior to the June 20, 2012 amended schedule B. However, the June 20, 2012 disclosure was clearly for purposes of a potential benefit to Shoemaker who, even in June 2012, knowingly and intentionally did not make full disclosure of his assets. As he agreed in the JPS:
It is clear that Shoemaker knew of these assets before the bankruptcy case was filed. Except for the gift and loan to Ms. Violan, they all arose out of his practice of law, which terminated with his May 31, 2010 suspension by the state bar. Almost all were for fees owed for work done prior to that time. Shoemaker clearly knew that they existed and intentionally omitted them from his initial schedules, his disclosures at the various §341(a) meetings, and his amended schedules. He only revealed them when he thought that he could receive a benefit from their collection on behalf of the estate. And even then he held back on at least twenty or more alleged assets, which later constituted the bulk of the Collection Cases.
While the actual value of these Collection Cases is unknown — largely because the statute of limitations had run before they were filed some four years after the bankruptcy case began — that is not the test of whether a debtor concealed his property. In at least one of the Collection Cases there was a default judgment for $5,000 and there may have been many more had he carried out his duty as a debtor and disclosed them in his initial schedules.
To be actionable, the omission must be material. While the value of the omitted asset is not dispositive, its omission is material if it detrimentally affects the administration of the estate. In re Wills, 243 B.R. 58, 62 (9th Cir. BAP 1989)
In this case, the omission of the assets underlying the Collection Cases is clearly material. At least some arose from a substantial settlement in state court litigation which had been commenced by Shoemaker under a contingency agreement. Had he revealed these at the beginning of the Chapter 7 Case — as he was required to do — the Trustee would have had a meaningful opportunity to pursue collection. Shoemaker himself believed that these had substantial value. And while he blames the Trustee for delaying the filing of the adversary proceedings for the Collection Cases, it was Shoemaker himself who allowed the statute of limitations to run by hiding these for some two years after he filed this Chapter 7 case.
The Court can only surmise as to his reason for concealment. Shoemaker is an attorney and must have known that he could not personally collect on these claims. Perhaps he hoped that the Trustee would abandon them to him, but perhaps not. His reasoning is not dispositive since his actions demonstrate his knowledge of these assets, his knowing failure to reveal them, and his intent to hinder the Trustee or at least delay him in pursuing property of the estate. Based on the evidence and the inferences drawn from his course of conduct, it is clear that — except as to the loan and gift to Ms. Violan — Shoemaker intentionally concealed this property of the estate and thus violated §727(a)(2)(A). In re Devers, 759 F.2d 751 (9
The issues concerning Ms. Violan are less clear and the Court need not make a ruling on them, given the concealment of the assets resulting in the Collection Cases.
The Court finds the OUST has proven each element of Section 727(a)(2)(A) so as to warrant denial of the discharge.
Section 727(a)(2)(B) deals with property
To deny Shoemaker's discharge under Section 727(a)(2)(B), the Court must find that Shoemaker's failure to disclose the Trust was with actual intent to hinder, delay, or defraud. Phillips v. United States Trustee (In re Phillips), 2010 WL 6259975, *10 (9
Although Shoemaker has established that George McFarland was not a blood relative and thus has inferred that he had no knowledge of the inheritance prior to its receipt, inference does not take the place of actual evidence. However, the Plaintiff is the one who has the burden of proof. The only evidence that it has offered is the fact that Shoemaker received the distribution from the Trust via direct deposit into his bank account.
There is no doubt that Shoemaker immediately became aware on receipt of the money since he withdrew it shortly thereafter. At that time the money was not automatically exempt. There is legal uncertainty whether exempt property can trigger this section (is it "property of the estate" prior to being deemed exempt under §522(l)?). To the extent that there is any law on this issue, it seems that the underlying question is whether knowledge of the exempt property could have led to other assets or otherwise detrimentally affected the administration of the estate. See Wills, 243 B.R. at 63.
But in this case the Court need not struggle with this as to the Trust. The OUST has not shown that Shoemaker knew of his potential inheritance until he received it or that he had the intent to conceal it once it came into his possession. The mere fact that he immediately withdrew most of the money is no shock since he had lost his legal license and appears to have had no other source of income. That he never turned it over to the Trustee is not an issue since there is no evidence that the Trustee ever asked for it and, eventually, it was deemed to be exempt.
The OUST claims that had Shoemaker provided full and complete disclosure of his assets from the start of the case, the Trustee's administration would have been conducted differently. This is clearly correct as to the prepetition litigation claims (as discussed elsewhere). But not as to the Trust. For instance, the OUST argues that with prompt, accurate information from Shoemaker, the Trustee could have immediately decided whether the proceeds should have been returned to the Estate and how the trust funds should be distributed. Yet, even when the Trustee was aware of the funds and was aware of Shoemaker's Amended Schedule C claiming the trust funds as exempt, the Trustee did not object to the exemption. Moreover, while an omission on a schedule can be a concealment for purposes of Section 727(a)(2)(B), the Court finds that the OUST has not set forth sufficient evidence to demonstrate the requisite intent on the part of the Debtor that he intended to conceal the Trust proceeds. Therefore, the Court finds that the OUST has not proven each element of Section 727(a)(2)(B) so as to warrant denial of the discharge.
Section 727(a)(3) places an affirmative duty on the debtor to keep and preserve records accurately documenting his or her business and personal affairs. Requiring accurate documentation "removes the risk to creditors of `the withholding or concealment of assets by the bankrupt under cover of a chaotic or incomplete set of books or records.'" This exception to discharge is strictly construed in favor of the debtor's fresh start. Caneva v. Sun Communities Operating Ltd. P'ship (In re Caneva), 550 F.3d 755, 761 (9
The 9
Chen v. U.S. Trustee (In re Chen), 2017 WL 4768104, *6 (9
Shoemaker turned over some records in a timely fashion. Some he turned over after a request from the OUST, which was made about six months into the case. Others were in a storage facility and while he eventually waived privilege and gave permission for the Trustee to obtain those documents, the Trustee was prevented due to an outstanding storage fee of $3,000.
The OUST focuses on some specific personal records that were never turned over. The OUST argues that Debtor failed to produce accurate and complete records at the start of the case showing, among other things (1) the disposition of the trust funds that were withdrawn; (2) the disposition of the $5,000 loan to his then girlfriend in September 2009, approximately five months prior to the bankruptcy filing; (3) the source of the $13,382.25 deposited into his personal bank account approximately six months prior to the bankruptcy filing; or (4) the details on monies paid in connection with home repairs approximately five months prior to the bankruptcy filing.
Looking at the sums involved, these are not really the type of payments for which a reasonable person in like circumstances would keep records. For example, check #1005 for $2,500 that was given to a handyman for work on the Lake Elsinore property, check #1013 for $2,238.25 for materials for the roof repair on the Lake Elsinore property, or a purchase of jewelry for $2,120.63 that was given as a gift to his girlfriend. As to the use of the $20,000 that Shoemaker withdrew from the Trust proceeds, he explains that part was used for a business consultant and the balance was for living expenses.
These items are relatively small. Given their nature, it is unlikely that they might have led to undisclosed assets.
The other issue concerns the records in storage. It appears that the bin contained business records of Shoemaker's various enterprises and legal practice. And, of course, the AFL Trustee had some or all of the AFL documents.
The OUST makes much of the fact that Shoemaker quite possibly concealed an unknown amount of financial records by placing them in storage and not paying the resulting storage facility fees. However, the OUST has not offered any testimony to show how it attempted to gain access to these documents, i.e. making a request of the Trustee to actively pursue the retrieval of these documents by way of paying the fees or using a subpoena. Also, it should be noted that Shoemaker signed a waiver authorizing the Trustee to gain admittance to his storage facility and review the documents. Thus there is no evidence that Shoemaker failed to cooperate with the Trustee as to reviewing the records that he had.
Siegel testified that he did not have money in the estate to pay this fee and therefore the content of those boxes is still unknown. Siegel seems to agree that a debtor has no responsibility to pay the storage fees so that the Trustee (or anyone else) can gain access.
Here, while Plaintiff and Shoemaker were involved in discovery disputes concerning the production of documents and responses to interrogatories, the OUST's evidence does not establish that Shoemaker failed to maintain adequate records and that such failure made it impossible for the Trustee to ascertain Debtor's financial condition. Shoemaker did provide the OUST with numerous documents which included bank statements detailing the wire transfer of the trust fund monies.
Based on the numerous records eventually turned over by Shoemaker and the OUST's failure to provide sufficient evidence that Shoemaker's records were inadequate, the Court cannot find that the OUST has satisfied the first element under Chen and Cox that Shoemaker failed to maintain and preserve adequate business records. Since the OUST has the burden of proof under Section 727(a)(3) which is strictly construed against it as the party objecting to discharge, the Court finds the OUST has not proven each element of Section 727(a)(3) so as to warrant denial of the discharge.
Khalil v. Developers Sur. & Indem. Co. (In re Khalil), 379 B.R. 163, 172 (B.A.P. 9th Cir. 2007), aff'd, 578 F.3d 1167, 1168 (9th Cir. 2009)
The OUST asserts that Shoemaker gave a false oath as to these items: (1) his lack of prepetition knowledge of the inheritance, which is discussed above under §727(a)(2); (2) his initial failure to disclose all potential litigation claims, which he only did some eighteen months later and then it was only in a piecemeal fashion; and (3) a $5,000 gift or loan to Shoemaker's ex-girlfriend, apparently to start a handbag and accessories business. There is also some question about whether Shoemaker had an interest in the business that she started, but no evidence has been offered to show that he did.
In re Roberts, 331 B.R. 876, 884-85 (B.A.P. 9th Cir. 2005), aff'd and remanded, 241 F. App'x 420 (9th Cir. 2007)
The first element that must be proven to deny discharge under Section 727(a)(4)(A) is the existence of a false oath in connection with the bankruptcy case. Retz, 606 F.3d at 1197. Here, except as to the inheritance, Shoemaker clearly omitted the above-mentioned items on his original Schedules and Statement of Financial Affairs. There is no question he signed his Schedules and SOFA under penalty of perjury. He also indicated that he was not aware, at the time, of any errors or omissions in any of his schedules. Shoemaker amended his Schedules more than once over the course of the pending bankruptcy. He has agreed that the June 20, 2012 Amended Schedules included a partial list of potential litigation matters that he proposed to Trustee Siegel and Plaintiff as a compromise.
While, as discussed under §727(a)(2) above, the evidence concerning the omission of the gift and/or loan to Ms. Violan and the inheritance do not arise to a sufficient level to show an intent to hide assets, the failure to list any (initially) and all (in June 2012) of the potential litigation assets was clearly a knowing and fraudulent omission. Shoemaker knew of the existence of these assets that he later valued at over $10 million. He knew that the schedules were not true and correct, but each time he signed his schedules he swore under penalty of perjury that they were true and correct. He intended the Trustee and his creditors to rely on what was contained (and not contained) in those Schedules. And the Trustee did rely on what he filed during at least the first eighteen months of the case. While Shoemaker faults the Trustee for delaying litigation from June 2012 — when Shoemaker first revealed some of his "hidden" assets — until May 2014 when the Trustee filed the initial adversary proceeding to collect, it is clear that the Trustee and the Estate suffered a detriment from Shoemaker's initial delay. Many of the Collection Cases were dismissed due to the statute of limitations, which had been substantially shortened because of the eighteen month delay that occurred due to Shoemaker's concealment, It is unknown what the result in each case would have been if the Collection Cases had been filed eighteen months sooner. These facts meet the requirements to find fraud.
The second element required in a Section 727(a)(4)(A) finding is that the omission must be regarding a material fact. A fact is material "if it bears a relationship to the debtor's business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of the debtor's property." Khalil, 379 B.R. at 173. Furthermore, an omission or misstatement that "detrimentally affects administration of the estate" is material. Retz, 606 F.3d at 1198.
According to the OUST, Shoemaker's various omissions relate to property of the estate and the disposition of this property. The Court finds that the omissions as to the Trust inheritance (which ultimately was exempt) and the loan/gift to Ms. Violan (totaling some $7,000) had no resulting impact on the administration of the case. However, it is a different story as to the litigation claims. Although the Trustee initially determined that they had no value to the estate, this concerned only those which had been revealed on the June 20, 2012 schedule B. There were many more, which made up the bulk of the Collection Cases. And although the Trustee did not seem to have much faith in recovering substantial sums from the Collection Cases, he found attorney Bret Lewis who — after consultation with Shoemaker and analysis of the actions — was willing to take the Collection Cases on a contingency fee basis, thus investing his time in pursuing these matters. The Court cannot find that either Mr. Siegel or Mr. Lewis acted in bad faith in bringing all or most of the Collection Cases. And had Shoemaker timely and completely revealed these, they may have had substantial value. Thus the requirement for materiality is met.
As discussed above, the Court clearly finds fraudulent intent by Shoemaker in withholding disclosure of the accounts receivable and other assets which later formed the basis of the Collection Cases.
The Court finds that the OUST has proven each element of Section 727(a)(4)(A) so as to warrant denial of the discharge
Section 727(a)(3) covers the failure to maintain records. Section §727(a)(4)(B) concerns records that actually exist, but have been knowingly or fraudulently withheld by the debtor. The discussion above concerning §727(a)(3) touches on this. In summary, there is no evidence that Shoemaker had documents that he withheld. The existence of the box(es) in storage vitiates a claim that he did not keep records (§727(a)(3)) and his cooperation in turning over the key and signing the waiver shows that he did not withhold access from the Trustee.
The Court finds the OUST has not proven each element of Section 727(a)(4)(D) so as to warrant denial of the discharge.
Since the Court finds for the Plaintiff as to §727(a)(2)(A) and §727(a)(4)(A), the burden shifts to the Defendant to show that he has one or more affirmative defenses. Per the JTS, Shoemaker has asserted six groups of affirmative defenses. He also asserts an additional defense in his Closing Brief.
No evidence has been proffered that the Plaintiff (the OUST) or the Trustee (Siegel) treated Shoemaker in any inequitable fashion. Therefore the Court finds that unclean hands of the Plaintiff is not an affirmative defense in this case.
Although Shoemaker has prevailed under §727(a)(3), I will still analyze his affirmative defenses as to that claim for relief.
Shoemaker seems to believe that just because the Trustee does not act to preserve assets of the estate, a debtor is excused from carrying out his duties to timely reveal these through his schedules and statement of affairs. This is not the law. The loss of the Lake Elsinore property is simply not relevant to this adversary complaint.
In this case, as noted above, the OUST has not carried its burden. There were certainly missing documents, but we do not know what is contained in the storage boxes that were not opened. It was not Shoemaker who refused turnover. The storage facility is the one that would not let the Trustee have the boxes without being paid some $3,000. Siegel testified that the estate did not have the money. But he also felt that Shoemaker was not required to spend his own money to get the documents released. Shoemaker had waived any privilege and that appears to be enough.
Clearly the failure to reveal the interest in the Trust and the receipt of the money was a material omission. While Shoemaker later provided this information (but only after the Trustee had seen his bank statements that showed the deposit and withdrawal), Shoemaker did not turn over the money. Had the money not been claimed as exempt and the Trustee apparently agreed since he never objected, this failure may have had some effect. But it was exempt and, further, the Trustee never requested turnover.
The information about the $5,000 loan to Shoemaker's girlfriend may have been material. Given the lack of cash in this estate, even the recovery of such a relatively small amount of money could have paid for the boxes in storage. At this point we do not know — and will never know — whether the documents in those boxes would have led to recovery of substantial assets.
However, the main omission of information concerned the litigation assets and — as discussed above — that was definitely material.
This largely concerns both the boxes in storage and Shoemaker's offer to assist in the series of lawsuits to recover fees and property allegedly owed to him by former clients and on former cases. Because the Court is ruling in favor of Shoemaker as to §727(a)(3) and §727(a)(4)(D), no affirmative defense is needed or relevant.
Judgment is granted to the Plaintiff under §727(a)(2)(A) and §727(a)(4)(A).
Judgment is granted to the Defendant under §727(a)(2)(B), §727(a)(3), and §727(a)(4)(D).
